Seeing Green: Blenders Adapt to Changing Tastes in Tea

Firsd Tea assembles tea bags, leaf tea, tea drinks, and instant tea from China and distributes from its US facility in Delaware.

Sustained demand for specialty teas, especially green teas, is reshaping the US tea blending, fill and packing industry which has grown to $1.6 billion annually and now employs 1,681 workers at 42 facilities mainly in California and the Southeast.

Several years ago executives at Zhejiang Tea Group., a firm with 135,000 acres of tea and the largest processing capacity in China, noticed an unexpected trend in North American orders.

Accustomed to thinking of the US and Canada as low volume buyers of low quality tea at the lowest possible price—the continent was low on their list of export targets. Bulk green tea sold for less than $2 a kilo at a time when China’s domestic market was paying $325 a kilo for good quality greens. There were clearly greener pastures in Asia, the Middle East, and Europe.

What caught Zhejiang’s eye were orders for their more expensive green teas planted specifically for export. These blendable “clean teas” contained negligible residue from pesticides; some were certified organic. Zhejiang Tea Group became China’s largest supplier of organic teas. Today organics account for more than 10% of US tea sales.

Demand initially was concentrated on the West Coast and in British Colombia where hundreds of thousands of former residents of Hong Kong were making a new home. Sixty-one percent of US tea arrives via Canada. Most of the US bound green docks in Vancouver. Very little is sent direct from China and volumes are small from Japan (5%) and Korea (4%) the two rival green tea suppliers.

West Coast buyers noticed a jump in orders around 1995. Sales of lightly scented Jasmine continue to build until 20 years later greens are a standard offering in tea shops, restaurants and even fast-food outlets like Wendy’s which this summer became the first major chain to offer an organic iced tea exclusively supplied by Honest Tea.

QTrade Tea & Herbs processes 40,000 lbs. daily in a 70,000 sq. ft. blending facility in Cerritos, Calif. It is North America’s largest supplier of organic and Fair Trade teas. QTrade president Manjiv Jayakamur first noticed the trend “when the story of tea and health began to be told,” he recalls. “Today no serious importer or blender can stay exclusively black tea. Green is a basic credential to be mastered,” he said.

The most recent incarnation of the trend is fresh brewed commercial green iced teas. “To begin offering green organic teas in quick service is very significant. Wendy’s introduction of a mango green tea was a glaring green light about changes coming,” said Jayakamur.

Greens are usually lightly flavored. Demand is greatest for blends that pair Japanese sencha and Chinese style teas with colorful florals and fruit. Popular retail outlets including Teavana, Teaopia, Ten Ren Tea, and DavidsTea displayed walls of tea tins in every style.

To be a successful tea retailer “the main thing is to cover the waterfront with good teas,” says Michael Harney, president of Harney & Sons Fine Teas. He told Tea Afficionados that “China is our largest source for tea, then India. We find the Chinese tea to be a good neutral backdrop and we can use it for our blends,” he said. “Chinese tea is less brisk, more mellow, and so it becomes a good canvas to paint on.”

Green tea opportunity

Tea is a rounding error in China’s ¥26.4 trillion yuan export market. Tea exports were valued at $1.27 billion last year—about 3% of the country’s total—considerably less than a single shipload of smart phones. Yet tea merits presidential attention. Xi Jinping cited development of the ancient silk road economic belt and the maritime tea trading routes as China’s new “one belt, one road” approach to the global economy. Tea is China’s greatest ambassador, he declared, promising “a great rejuvenation” of the Chinese economy.

In the 1990s China designated several provinces to become export engines for tea. To insure consistency demanded by Western grocers and brands, former state-owned firms like Zhejiang Tea Group planted hundreds of thousands of acres of identical cultivars. Founded in 1950 and shipping 40,000 metric tons annually, Zhejiang Tea Group is now the largest exporter of green tea in the world.

To increase production the traditional exporting provinces of Zhejiang and Fujian were joined by lesser known but very productive tea regions such as Guizhou where exports increased by 74 times in 2014. The big driver was clean soil that could be easily certified organic.

The US is now the fourth largest tea importer in the world. Green tea consumption in the US was less than 10% in 1990 a time when total tea sales were less than $2 billion. Specialty teas were rare. Consumption has since quadrupled and the tea market is valued at more than $10 billion. Green teas (including white tea) now account for 22.5% of tea processed in the US. Americans still consume black tea for the most part, a segment that accounts for 57.7% of processed tea. The remaining 19.8% is herbals, according to IBIS World.

US blending capability

The great majority of tea consumed in the US and Canada is produced overseas by industry giants like Tata Global Beverages (Tetley-Good Earth) and multi-nationals like Twinings and Nestle (Nestea). Unilever (Lipton) has operated the largest tea bagging facility in the US since 1955. To meet US demand the company recently invested $96.2 million in new production machinery for its facility in Suffolk, Va.

At a time when the nation’s GDP was rising at 2.5% the pace of growth of the US tea blending and filling industry’s topped 6.9%.

In 2012 Zhejiang Tea Group made its move, opening an ISO 9001 certified distribution facility in New Castle, Delaware. The 7,578 sq. ft. fills and packs for large enterprises offering a range of services from its Chinese headquarters that include de-caffeination, tea extracts, and product development. The firm intends to expand in 2017 to a full-service US blending and tea manufacturing facility.

“We are seeing increased demand in the US market for better quality tea as well as quality assurances from a reliable source,” says Shengyuan Chen, executive director of Firsd Tea North America. Also notable is tea’s broadening market penetration. Tea is now transcending gender lines as well as age cohorts. Among the emerging adopters for tea are millennials with as many millennials consuming tea as those consuming coffee, she said.

Green tea remains the fastest growing segment. The $5 billion RTD tea category is certainly a growth driver, observes Chen. “Consumers are increasingly disenchanted with sugar-laden soft drinks and juices and are adopting tea as a healthy alternative. Growth in RTD is also supported by consumer demand for convenience,” she said.

Tea sales are also increasing as a result of expanding market segmentation; for instance, 42% of Americans under 30 drink tea while 27% of millennials only drink tea.

Tea’s growing market segmentation and mainstream adoption, its application and iteration in new products and categories as well as its reach beyond the retail channel into food-service chains and other channels will all contribute to its continued growth. Green tea in particular will be at the fore given its marketability and recognition as a wellness product, she said.